Arsenal Energy Inc. Releases Q3 Results

Arsenal is pleased to release its 2015 Q3 financial and operational results. Cash flow for the third quarter totaled $5.9 million or $0.31 per share basic, a 61% decrease from 2014 Q3. The Board of Directors has declared a quarterly dividend of $0.02 per common share. The dividend is payable on Nov 27, 2015 to shareholders of record at the close of business on Nov 13, 2015. The ex-dividend date is Nov 10, 2015.

Financial:

SUMMARY OF FINANCIAL RESULTS

Three Months
Ended Sept 30

Nine Months
Ended Sept 30

(000’S Cdn. $ except per share amounts)

2015

2014

2015

2014

FINANCIAL

Oil and gas revenue

13,382

33,322

43,553

91,830

Funds from operations

5,906

14,994

27,825

37,657

Per share – basic

0.31

0.89

1.52

2.30

Per share – diluted

0.30

0.88

1.49

2.27

Cash and stock dividends paid

387

1,182

1,281

3,192

Per share

0.020

0.070

0.070

0.195

Net income (loss)

(13,586

)

9,622

(17,481

)

10,274

Per share – basic

(0.71

)

0.57

(0.95

)

0.63

Per share – diluted

(0.71

)

0.57

(0.95

)

0.63

Total debt

52,339

81,230

52,339

81,230

Capital expenditures

4,897

14,869

17,603

44,509

Property acquisitions

–

–

–

152

Property dispositions

(179

)

(100

)

(1,856

)

(100

)

Net wells drilled – Oil

3.00

–

3.89

7.76

– Dry and other

–

–

–

1.20

Total net wells drilled

3.00

–

3.89

8.96

Common Share Trading Range

High

3.14

9.80

6.72

9.80

Low

1.37

7.60

1.37

4.52

Close

1.71

9.20

1.71

9.20

Average daily volume

30,780

21,826

31,465

25,281

Shares outstanding – end of period

19,376

16,974

19,376

16,974

Full financial details are contained in the financial statements and MD&A filed on SEDAR and on the Company’s website.

Cashflow from operations for Q3 2015 totaled $5.9 million or $0.31 per share basic versus $15.0 million or $0.89 per share basic for Q3 2014. The decrease in cash flow is attributable to a 46% drop in revenue per boe and from lower production volumes. The Company’s focus on costs and expenses has resulted in a reduction of net debt at quarter end to $52.3 million compared to $81.2 million at Q3 quarter end in 2014.

Operations:

SUMMARY OF OPERATIONAL RESULTS

Three Months
Ended Sept 30

Nine Months
Ended Sept 30

2015

2014

2015

2014

OPERATIONAL

Daily production

Heavy oil (bbl/d)

14

47

24

43

Medium oil and NGL’s (bbl/d)

1,695

2,006

1,676

1,852

Light oil and NGLs (bbl/d)

1,119

1,803

1,259

1,515

Natural gas (mcf/d)

4,541

5,943

5,235

6,048

Oil equivalent (boe/d @ 6:1)

3,585

4,848

3,832

4,419

Realized commodity prices ($Cdn.)

Heavy oil (bbl)

47.31

85.55

43.97

81.33

Medium oil and NGL’s (bbl)

45.92

84.79

48.05

86.94

Light oil and NGLs (bbl)

50.73

91.32

52.23

94.47

Natural gas (mcf)

2.24

3.93

2.32

4.74

Oil equivalent (boe @ 6:1)

40.57

74.71

41.63

76.12

Netback ($ per boe)

Revenue

40.57

74.71

41.63

76.12

Royalty

(7.67

)

(17.32

)

(8.81

)

(16.58

)

Operating and transportation

(16.30

)

(15.84

)

(15.72

)

(19.15

)

Operating netback per boe

16.61

41.55

17.10

40.40

General and administrative

(2.95

)

(2.68

)

(3.08

)

(2.76

)

Cash portion of share based compensation

–

–

(0.12

)

–

Interest and other financing

(1.64

)

(1.63

)

(1.53

)

(1.74

)

Realized gain (loss) on risk management contracts

5.56

(3.04

)

14.24

(4.27

)

Other (FX and current tax)

0.32

(0.57

)

(0.02

)

(0.41

)

Fund from operations per Boe

17.91

33.62

26.60

31.22

Average production of 3,585 boe/d during the third quarter was 26% lower when compared to the third quarter of 2014. The drop is due to normal production declines in the absence of new drilling and from the shut-in of approximately 100 bbls/d of oil production when revenues dropped below operating costs. In addition, Arsenal shut in the Desan gas field for the months of September and October to conduct pressure surveys. Arsenal’s Q3 2015 production mix was 31% light oil, 48% medium and heavy oil, and 21% natural gas.

During the third quarter, Arsenal drilled three wells, two Detrital oil wells at Princess, Alberta and one non commercial oil well at Provost, Alberta. The two Princess wells are expected to be tied in and on production in November. Also during Q3 2015 at Princess, Arsenal added 11,500 acres of land, 9 square miles of 3D seismic, and increased its drilling inventory by 8 locations.

During Q1 2015, Arsenal participated in new drill operations on 6 gross (0.89 net) Bakken/ThreeForks horizontal wells in Lindahl, North Dakota. All of the wells were originally scheduled to be on production in August 2015. The operator has now advised Arsenal that the wells should be on production in February 2016. Well costs in North Dakota have dropped from $9.5 US million/well in early 2014 to approximately $5.5 US million/well for the wells drilled in Q1 2015.

Outlook

The Company intends to drill five Princess Detrital locations during the fourth quarter of 2015 that was funded by the 2014 flow-through share issue. At the end of the Q4 program, Arsenal will have satisfied all of its 2014 flow-through obligations and delineated most of its Princess land block.

Oil prices have stabilized at very low levels. Through these challenging times, Arsenal will continue to focus on reducing costs and lowering debt. At the same time, Arsenal is using this downturn in the industry to acquire properties in its core area at very attractive prices. Arsenal’s 2015 capital program is now estimated at $26.2 million. Volume forecast for 2015 is an average of 3,850 boe/d. Cash flow for 2015 is now estimated at $31.7 million (which includes approximately $14.9 million in realized hedging gains) and total debt at yearend is estimated at approximately $56.0 million.

2016 Budget

Arsenal has completed a preliminary 2016 budget based on current forward strip pricing. It calls for capital spending of approximately $13 million plus a small amount for tuck-in acquisitions. Virtually all of the capital is allocated to drilling Glauconite and Detrital wells at Princess. During 2015 most of the drilling was exploratory drilling funded by the issuance of flow through shares. Much of the 2016 program is lower risk development drilling that is close to infrastructure and is being funded by cash flow. Production is projected to be held flat at approximately 4,000 boe/d and debt is projected to be reduced by about $5 million.

This release contains forward-looking statements and forward-looking information within the meaning of applicable Canadian securities laws. These statements relate to future events or the Company’s future performance and are based upon the Company’s internal assumptions and expectations. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “may”, “will”, “should”, “believe”, “intends”, “forecast”, “plans”, “guidance”, “budget” and similar expressions.

More particularly and without limitation, this release contains forward-looking assumptions, statements and information relating to petroleum and natural gas production estimates and weighting, projected crude oil and natural gas prices, future exchange rates, expectations as to royalty rates, expectations as to transportation and operating costs, expectations as to general and administrative costs and interest expense, expectations as to capital expenditures and net debt, planned capital spending, future liquidity and Arsenal’s ability to fund ongoing capital requirements through operating cash flows and its credit facilities, supply and demand fundamentals for oil and gas commodities, timing and success of development and exploitation activities, cash availability for the financing of capital expenditures, access to third-party infrastructure, treatment under governmental regulatory regimes and tax laws and future environmental regulations.

The forward-looking statements and information contained in this release are based on certain key expectations and assumptions made by Arsenal. The following are certain material assumptions on which the forward-looking statements and information contained in this release are based: the stability of the global and national economic environment, the stability of and commercial acceptability of tax, royalty and regulatory regimes applicable to Arsenal, exploitation and development activities being consistent with management’s expectations, production levels of Arsenal being consistent with management’s expectations, the absence of significant project delays, the stability of oil and gas prices, the absence of significant fluctuations in foreign exchange rates and interest rates, the stability of costs of oil and gas development and production in Western Canada, including operating costs, the timing and size of development plans and capital expenditures, availability of third party infrastructure for transportation, processing or marketing of oil and natural gas volumes, prices and availability of oilfield services and equipment being consistent with management’s expectations, the availability of, and competition for, among other things, pipeline capacity, skilled personnel and drilling and related services and equipment, results of development and exploitation activities that are consistent with management’s expectations, weather affecting Arsenal’s ability to develop and produce as expected, contracted parties providing goods and services on the agreed timeframes, Arsenal’s ability to manage environmental risks and hazards and the cost of complying with environmental regulations, the accuracy of operating cost estimates, the accurate estimation of oil and gas reserves, future exploitation, development and production results and Arsenal’s ability to market oil and natural gas successfully to current and new customers. Additionally, estimates as to expected average annual production rates assume that no unexpected outages occur in the infrastructure that the Company relies on to produce its wells, that existing wells continue to meet production expectations and any future wells scheduled to come on in the coming year meet timing and production expectations.

Commodity prices used in the determination of forecast revenues are based upon general economic conditions, commodity supply and demand forecasts and publicly available price forecasts. The Company continually monitors its forecast assumptions to ensure the stakeholders are informed of material variances from previously communicated expectations.

Financial outlook information contained in this release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management’s assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this release should not be used for purposes other than for which it is disclosed.

Although the Company believes that the expectations reflected in such forward-looking statements and information are reasonable, it can give no assurance that such expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent known and unknown risks and uncertainties. Arsenal’s actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits Arsenal will derive therefrom. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production, delays or changes in plans with respect to exploration or development projects or capital expenditures, the uncertainty of estimates and projections relating to production rates, costs and expenses, commodity price and exchange rate fluctuations, marketing and transportation, environmental risks, competition from others for scarce resources, the ability to access sufficient capital from internal and external sources, changes in governmental regulation of the oil and gas industry and changes in tax, royalty and environmental legislation. Additional information on these and other factors that could affect the Company’s operations or financial results are included in the Company’s most recent Annual Information Form and other reports on file with the applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

Readers are cautioned that the foregoing list of factors is not exhaustive. Furthermore, the forward-looking statements contained in this release are made as of the date of this release for the purpose of providing the readers with the Company’s expectations for the coming year. The forward-looking statements and information may not be appropriate for other purposes. Arsenal undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. The forward-looking statements contained in this release are expressly qualified in their entirety by this cautionary statement.

Basis of Presentation. For the purpose of reporting production information, reserves and calculating unit prices and costs, natural gas volumes have been converted to a barrel of oil equivalent (boe) using six thousand cubic feet equal to one barrel. A boe conversion ratio of 6:1 is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This conversion conforms with the Canadian Securities Administrators’ National Instrument 51-101 when boes are disclosed. Boes may be misleading, particularly if used in isolation.

Non-IFRS Measures. This release contains the terms “funds from operations”, and “net debt” which are not recognized measures under IFRS. The Company uses these measures to help evaluate its performance. Management uses funds from operations to analyze performance and considers it a key measure as it demonstrates the Company’s ability to generate the cash necessary to fund future capital investments and to repay debt. Funds from operations is a non-IFRS measure and has been defined by the Company as cash flow from operating activities before, exploration and evaluation expenses, decommissioning expenditures and changes in non-cash working capital from operating activities. The Company may also presents funds from operations per share whereby amounts per share are calculated using weighted average shares outstanding consistent with the calculation of earnings per share. Arsenal’s determination of funds from operations may not be comparable to that reported by other companies nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS. Net debt includes borrowings under the Company’s credit facility plus or minus the Company’s working capital. Net debt excludeslong term decommissioning obligations and risk management contracts (whether an asset or an obligation and whether classified as short or long term). Net debt is used by management to monitor remaining availability under its credit facilities.